XM Radio 1999 Annual Report Download - page 43

41 1999 ANNUAL REPORT
accrued expenses, royalty payable and the term loan approximate their fair market value because of the
relatively short duration of these instruments as of December 31, 1998 and 1999, in accordance with SFAS
No. 107, Disclosures about Fair Value of Financial Instruments.
The fair value of the loans and subordinated convertible notes due to related party at December 31, 1998 could
not be estimated as such amounts are due to the Company’s stockholders.
(6) Equity
(a) Recapitalization
Concurrent with the WorldSpace Transaction discussed in note 4, the Company’s capital structure was
reorganized. The Company’s common stock was converted into the newly authorized Class B common stock,
which has three votes per share. The Company also has authorized Class A common stock, which is entitled to
one vote per share and non-voting Class C common stock. The Class B common stock is convertible into Class
A common stock on a one for one basis, as follows: (1) at any time at the discretion of AMSC, (2) following the
Company's initial public offering, at the direction of the holders of a majority of the then outstanding shares of
Class A common stock (which majority must include at least 20 percent of the public holders of Class A
common stock), and (3) on or after January 1, 2002, at the direction of the holders of a majority of the then
outstanding shares of the Company’s Class A common stock. Such conversion will be effected only upon receipt
of FCC approval of AMSC’s transfer of control of the Company to a diffuse group of shareholders.
The Company also authorized 60,000,000 shares of preferred stock, of which 15,000,000 shares are
designated Series A convertible preferred stock, par value $0.01 per share. The Series A convertible preferred
stock is convertible into Class A common stock at the option of the holder. The Series A preferred stock is non-
voting and receives dividends, if declared, ratably with the common stock.
On September 9, 1999, the board of directors of the Company effected a stock split providing 53,514 shares
of stock for each share owned.
(b) Initial Public Offering
On October 8, 1999, the Company completed an initial public offering of 10,000,000 shares of Class A
common stock at $12.00 per share. The offering yielded net proceeds of $111,437,000.
On October 17, 1999, the underwriters of the Company’s initial public offering exercised the over-allotment
option for an additional 241,000 shares of Class A common stock at $12.00 per share. This exercise yielded
net proceeds of $2,697,000.
(c) Stock-Based Compensation
The Company operates two separate stock option plans, the details of which are described below.
1998 Shares Award Plan
On June 1, 1998, the Company adopted the 1998 Shares Award Plan (the “Plan”) under which employees,
consultants, and non-employee directors may be granted options to purchase shares of Class A common stock
of the Company. The Company initially authorized 1,337,850 shares of common stock under the Plan, which
was increased to 2,675,700 in July 1999. The options are exercisable in installments determined by the
compensation committee of the Company’s board of directors. The options expire as determined by the
committee, but no later than ten years from the date of grant. On July 8, 1999, the Company’s board of
directors voted to reduce the exercise price of the options outstanding in the shares award plan from $16.35 to
$9.52 per share, which represented the fair value of the stock on the date of repricing. Transactions and other